Yahoo Japan Seen Chasing Smartphone Ad Deals: Real M&A

Yahoo Japan Corp., whose biggest shareholders are SoftBank Corp. and Yahoo! Inc., is targeting a 77 percent jump in operating profit within six years by expanding in e-commerce and offering more smartphone and tablet-computer services. Photographer: Akio Kon/Bloomberg

Aug. 26 (Bloomberg) -- Yahoo Japan Corp., armed with $4
billion in cash, is putting the nation’s smartphone advertising
and online shopping companies on alert as it searches for growth
at home.

In the past five years, its sales growth was a third of the
average among peers, according to data compiled by Bloomberg, as
the operator of Japan’s most-visited Web portal failed to extend
its dominance to smartphone services. Japan’s ad sales on those
devices are projected to almost triple by 2017.

Yahoo Japan may find a logical target in blogging service
CyberAgent Inc. as its smartphone ad sales surge, said Iwai
Cosmo Holdings Inc. Buying the rest of Japan Net Bank Ltd. would
add online banking services to help catch up with Rakuten Inc.
in Internet shopping, said Ichiyoshi Research Institute Inc.

“The future is mobile,” Amir Anvarzadeh, a manager for
Japanese equity sales at BGC Partners Inc. in Singapore, said in
a phone interview. “If they’re looking to expand into any area
within their own realm, it has to be mobile.”

The company this month hired Ryu Hirayama, former vice
president of investment banking at Goldman Sachs Group Inc. in
Tokyo. He advised on mergers and acquisitions at the bank,
according to a person with knowledge of the matter.

Smartphone Advertising

Yahoo Japan, whose biggest shareholders are SoftBank Corp.
and Yahoo! Inc., is targeting a 77 percent jump in operating
profit within six years by expanding in e-commerce and offering
more smartphone and tablet-computer services. Ad revenue from
those devices made up just 9 percent of sales last quarter.

CyberAgent, Japan’s biggest smartphone advertising agency
by volume, last quarter generated 60 percent of its revenue from
smartphones and services such as gaming that are tied to the
devices. It has a market value of $1.6 billion.

Start Today rose 0.8 percent to 2,103 yen.

Yahoo Japan’s “target areas should be somewhere on the
smartphone,” said Naoshi Nema, an analyst at Cantor Fitzgerald
LP in Hong Kong. “Their online shopping is not as strong as
Rakuten’s. They may want to enforce that area because it has
very good synergies with smartphones.”

Mobile Supremacy

Selling more goods online drives up Web visitors and swells
ad sales. Portal owners such as Yahoo Japan typically take a cut
of transactions executed through their sites.

Kimihiko Sato, a spokesman for Yahoo Japan, declined to
comment. Representatives for Start Today and Japan Net Bank also
declined to comment. CyberAgent spokeswoman Sonoko Miyakawa said
the company has no plan to sell its advertising business.

Within two years, mobile devices will surpass personal
computers as the primary method of accessing Yahoo Japan’s
services, the company said in June. Currently, less than a
quarter of users tap its shopping services with smartphones.

Yahoo! Takeovers

“Screen sizes on mobiles are getting bigger,” said
Anvarzadeh at BGC Partners. “This is super important because
that paves the way for PC-type content to finally migrate
towards mobile content.”

Japan’s smartphone advertising market will almost triple
from 2012 to 221.3 billion yen ($2.2 billion) in 2017, according
to CyberZ Inc., a unit of CyberAgent.

The company has made 13 acquisitions since the beginning of
2012 totaling $671 million, according to data compiled by
Bloomberg. The largest was the purchase of a 42 percent stake in
office supplier Askul Corp. for $410 million, followed by the
acquisition of CyberAgent’s foreign-exchange unit.

Yahoo Japan isn’t under pressure to do more deals,
according to Weiss at JI Asia. The company’s ad sales from
smartphones almost doubled to 8 billion yen last quarter from a
year earlier.

Even so, Yahoo Japan hasn’t expanded at the pace of online
competitors.

Its average sales growth in the past five years was 7.3
percent, lower than the 27 percent average among Internet media
peers valued at more than $1 billion, data compiled by Bloomberg
show. Rakuten’s average was 16 percent while Start Today
delivered 30 percent, the data show.

Tokyo-based Rakuten, led by billionaire Hiroshi Mikitani,
said it had 29 percent of Japan’s e-commerce market last year,
higher than Amazon.com Inc.’s 12 percent and 6.2 percent at
Yahoo Japan. Rakuten started as an online shopping mall and
expanded into brokerage, insurance and credit card services.

Past acquisitions at Yahoo Japan may not be enough to catch
up, said Naya at Ichiyoshi Research Institute.

Yahoo Japan “has only done small deals, not major ones,”
Naya said. “The company needs to focus on Japan and make bold
moves.”